House of Fraser CVA approved with 31 store closures and 6000 job losses

House of Fraser CVA approved with 31 store closures and 6000 job losses

22 June 2018

One of the UK's best-known department stores, House of Fraser, has had its Company Voluntary Arrangement approved today which will result in the closure of 31 of its stores which means approximately 6000 job cuts. This has echoes of the collapse of BHS which tried to persuade landlords to write off some of its rent debts via a company voluntary arrangement. However, landlords are becoming more reluctant to agree on rent cuts if the business ends up going into administration anyway.

The move will see Chinese Investor, C.banner subscribe to new shares in House of Fraser to support the firm with fresh capital.

Update: The CVA is being challenged in the Scottish Court as being unfair and prejudicial on the landlords, The hearing date has been set for the 14th August. In another blow to the process C.banner has withdrawn its support and so other offers are being considered. A possible merger with Debenhams is a possibility or Mike Ashley of Sports direct might make a rescue bid.

House of Fraser is the latest of a line of retailers, Mothercare, Selecta, New Look and Carpetright, that have or hope to be been rescued via a CVA. The main issue is that many retailers have failed to adapt to the new market with the discounters, such as Primark, growing rapidly and changing shopping habits - most notably the shift to online.

If you are an employee of House of Fraser then read our guide for employees setting out your rights and what to expect

Expensive High Street stores can be cut back provided that the lease allows for early termination. If not the only way out is to surrender the lease that can be very expensive or use a company voluntary arrangement (CVA).

A CVA allows the retailer to determine its lease obligations which can greatly help the company's cash flow. It should be remembered that a CVA can be used for any type of business that has a regular income. It is popular with retailers due to the fact that rents are one of the biggest costs of these kinds of businesses.

It remains to be seen what will happen but given the massive change facing retailers, it may well be that High Street rents are simply too high and do not reflect the current market.

A recent report out by Deloitte has shown that the retail sector has seen the first rise in insolvencies in 5 years with larger stores, in particular, being the hardest hit.

Keith Steven Managing Director of KSA Group said; "We could be witnessing the unwinding of the zombie company construct. This clear out of over indebtedness and poor performance didn’t happen in 2009-11 as would have normally happened

Now perhaps banks PE investors are now more focused on survivable businesses and are saying enough is enough?

Just a quick note to say a big thank you to all the staff at KSA, our CVA was passed today by creditors voting in an overwhelming number including HMRC to accept the proposal as prepared by KSA.

The road to reach today’s conclusion has been bumpy, but at each stage your team has supported and guided us through the issues and we have reached a very satisfactory outcome to the benefit of customers, staff, all creditors and shareholders.